World
Council
of Credit
Unions, Inc.
A Guidebook for Factory Workers and Owners
Creating Factory Cooperatives
Content
Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
What is a Cooperative? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Operating Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Preparation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Starting a Cooperative - Some Warnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Assistance Available to the Cooperative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
APPENDIX A
Cooperative Departments & Support Organizations . . . . . . . . . . . . . . . . . . . . .18
APPENDIX B The Legal and Policy Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
APPENDIX C The Organizational Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
Foreword
Global Alliance for Workers and Communities (Global Alliance) is an initiative
of the International Youth Foundation working in a multi-sector partnership
with
global
companies
and
institutions
to
provide
support
and
development opportunities for workers involved in the global supply chain.
The production of these guidelines for establishing factory-based worker
cooperatives was undertaken at the request of the adidas Group. Numerous
individuals and organizations have contributed and our appreciation goes to
them all.
In particular, we thank the staff of the World Council of Credit Unions
(WOCCU) who contributed freely and generously of their time, efforts and
expertise. Mr Robert F. Lestina, Chief Executive Officer of Heritage Credit
Union (USA), traveled to Asia as WOCCU´s representative to visit factory-based
worker cooperatives, learn from the rich experience of board members,
managers and ordinary staff, and distilled his findings in field reports and in the
final drafting of these guidelines. John Ikeda, an MBA intern with WOCCU,
undertook substantial literature research and editing of the guidelines with
the support of Ellen Ferch, Program Specialist of WOCCU. We also thank Brian
Branch, Vice President of WOCCU, for his guidance in establishing the
partnership with Global Alliance to develop these guidelines.
We are extremely grateful to the representatives of worker cooperatives in Asia
who received our visits and openly discussed the challenges and
opportunities involved in establishing factory based coops. These included RSI
Savings & Credit Cooperative of Chonburi, Thailand; Union Bangpoo Savings
& Credit Cooperative of Samutprakarn Province, Thailand; PIN Cooperative of
Tangerang, Indonesia; and Melati Cooperative of Bandung, Indonesia.
In Thailand the team received significant guidance and support from the
Cooperative Promotion Department of the Ministry of Agriculture and
Cooperatives. The Federation of Savings and Credit Cooperatives of Thailand
facilitated the visit to Union Bangpoo and gave generously of their time. Special
thanks also goes to the Cooperative Auditing Department in Thailand, also
GA´s Personal Finance program partner.
4 /// creating factory cooperatives
In Indonesia, similar guidance and support was provided by the Cooperative
and Small and Medium Enterprises Department. We thank the officers of both
these departments of Government for their assistance, advice and wise
counsel based on many years of experience.
From within Global Alliance we recognize and thank staff in Thailand and
Indonesia for their participation, organization, and support of the development
of the guidelines. In particular Ms Krittika Wongklom in Thailand who
coordinated the regional effort and Ms Magdalena Pasaribu in Indonesia who
arranged, managed and participated in briefings and visits there.
Finally, on behalf of Global Alliance, we thank the representatives of
adidas who share the knowledge that workers involved in production within the
global supply chain are human beings with a range of needs and aspirations.
The vision of adidas in initiating the development of these guidelines is that
they be freely shared as one contribution to the support and development of
workers everywhere. That is a vision Global Alliance fully shares.
World
Council
of Credit
Unions, Inc.
creating factory cooperatives /// 5
What is a Cooperative?
Cooperatives are businesses that are
owned by their customers. The
customers join the cooperative and
become
official
‘members’
by
purchasing a share in the business.
Each member has the same number of
shares as every other member, so all
are equal. Profits from the cooperative
are distributed to its members or put
back into the operation of the
cooperative. In most countries any
group of people can get together and
form a cooperative as long as they
follow local laws.
There are many kinds of cooperatives
which can be beneficial to factory
workers. Child care cooperatives can
let parents work while their children
are properly cared for. Health care
cooperatives can provide low-cost
medical care. A shop can be
established as a cooperative to provide
workers with convenient access to
shopping for food or other goods. The
most common type of cooperatives in
factories however is a credit union,
which is like a bank, but one owned by
the members.
Establishing a cooperative can have
benefits for factory workers, managers
and owners.
Normal business operation
6 /// creating factory cooperatives
In Thailand the Government recognizes six main types
of cooperatives:
Consumer Cooperatives
which help members obtain various goods at reasonable prices and at an
agreed quality. They sometimes operate as a shop or supermarket.
Savings and Credit Cooperatives
which enable members to easily access a scheme for securely saving
some of their income and also for obtaining loans for agreed purposes.
Service Cooperatives
in which people who do similar work (such as taxi drivers or craft producers)
or have a common need (such as obtaining clean water or housing) work
together to deal with their common needs and concerns.
Agricultural Cooperatives
which enable farmers to engage in business together, share equipment,
manage resources such as irrigation systems, make loans to members,
learn new farming techniques and market farm produce.
Land Settlement Cooperatives
in which the members are poor farmers who share land which they come
together to purchase or rent.
Fisheries Cooperatives
which assist members involved in the fishing industry to market and sell their
products, provide savings and loans, purchase equipment and learn new skills
such as fish farming.
Cooperative operation
Operating Principles
Cooperatives around the world operate
on a basic set of generally
accepted principles that serve as the
foundation for all cooperative businesses:
• Open and voluntary membership –
Membership is voluntary and is
available to all within a common
group (such as workers in a factory)
who meet the criteria of the
cooperative.
• Democratic control –
Cooperative members enjoy equal
rights to vote (one member, one vote)
and participate in decisions affecting
the cooperative, without regard to
individual levels of participation in the
cooperative. The cooperative is
independent from any other body and
is led by volunteer members.
• Non-Discrimination –
Cooperatives are non-discriminatory
in relation to race, nationality, sex,
religion, politics and social standing.
• Service to members –
A cooperative’s purpose is to improve
the economic and social well-being of
all members.
• Members’ economic participation –
Members receive, in some form, all
profits not needed for the
cooperative to continue growing or
meet its obligations.
• Building financial sustainability –
A cooperative’s duty is to build and
uphold financial strength by building
reserves and maintaining strong
internal
controls
within
the
organization.
A Savings and Credit Cooperative in Thailand
Workers and Managers at a shoe factory in Thailand established a Savings and
Credit Cooperative in 2003. It is a single purpose cooperative offering savings
accounts and emergency and general loans to its members. Members are
required to regularly purchase new shares at a very small cost.
This ensures the cooperative always has ’capital’ to ensure its operations. The
share costs will be refunded when the member leaves the cooperative. Regular
savings can be withdrawn by members at any time. Emergency loans are short
term - usually 2 months and may be given immediately. General loans may be
repaid over a 24-month term and are approved by the Board of Directors, which
meets monthly. Loans are charged at the rate of 10% per annum and require two
guarantors. The most common reason that members borrow is to repay black
market debt. Regular, mandatory share deposits are made by members and may
not be withdrawn unless the member severs his/her affiliation with the coop.
Savings earn a rate of 2.5% and may be withdrawn at anytime.
• On-going Education –
Cooperatives actively promote
education for their members,
officers, and employees and the
general public on the economic,
social, democratic and mutual selfhelp principles of cooperatives.
• Cooperation among cooperatives Whenever possible, cooperatives
cooperate with and support other
cooperatives.
• Social responsibility –
Cooperatives promote positive
environmental and social goals
wherever possible.
How Do Workers Benefit
From a Cooperative?
There are many benefits for workers
who establish a Cooperative:
Real needs are met:
Because the members are also the
owners they set the goals for the
business and determine how it will
operate. They can choose the most
convenient hours for the cooperative to
operate, the type of staff it should
employ, the types of goods or services
it will offer. So the cooperative is able to
respond to the needs of its members.
Value for money:
Workers can purchase basic goods and
services at a consumer cooperative. In
some cases the costs might be lower
than what they would be elsewhere.
creating factory cooperatives /// 7
Convenience:
The cooperative can be located in or
near the factory so that the workers do
not have to travel far to do their
shopping or get access to the services.
This set-up also gives them more free
time.
Education and experience:
By owning and managing a cooperative,
workers learn new skills such as
making
business
decisions,
negotiating, working together, choosing
leaders and running a business. These
skills are the same types of skills
needed by most companies in the
modern workplace - effective decision
making, team work, problem-solving,
etc. Cooperatives also encourage
education programs for members.
Increased financial security:
Credit and savings cooperatives help
members achieve their financial goals
by providing access to savings schemes
and loans.
How Does the Factory
Benefit From a Cooperative?
Assisting workers to establish a
cooperative can have many benefits
for factory managers and owners:
1. Productivity:
Like all people, workers have many
needs and concerns. Establishing a
cooperative can help meet some of
these needs and concerns so
employees will have fewer distractions
and can focus on their work.
8 /// creating factory cooperatives
2. Trust:
By supporting the cooperative, factory
management can show workers that
the factory cares about them. This
promotes trust and a better working
relationship between managers and
workers.
3. Reduced turnover:
Some factories suffer from high
turnover of staff which means
continuous loss of skills and increased
costs of recruitment and training new
employees. Forming a cooperative is
frequently viewed by workers as a
significant benefit of working for a
specific factory. Managers in Asia said
factory turnover rates decreased once a
cooperative was in place.
4. Reduced absenteeism:
Since a cooperative in or near the
factory can provide products and
services that workers need, there is
less reason to be absent from work. The
services offered by a cooperative can
also reduce stress which is a common
cause of absenteeism in Asia.
5. Better business:
Global buyers are looking for factories
that provide high quality products at a
competitive price. They are also looking
for factories that meet agreed-upon
standards of conduct in their treatment
of workers. Supporting a worker
cooperative shows global buyers that
the factory is committed to its workers
and their livelihood both in and out of
the factory. This, in the long run, can
mean more business for the factory.
Getting Started
To establish a cooperative there must
be a core group of factory workers
interested in starting the process.
These volunteers will talk with other
workers and, after an assessment of
workers’ needs, will choose the best
type of cooperative to meet their needs.
The volunteers can function as a
committee to control the organizational
steps to form the cooperative.
Establishing a cooperative is often
difficult for people who have never done
it before. In most countries the
Government has a Department which
can meet with and assist people
wanting to start a new cooperative. This
department is a good place to start.
The Steps In Setting Up A
Cooperative Business
The picture above shows a diagram of
the main steps for starting the
cooperative business and a suggested
timeline for completing important
tasks. Once the Organizing Committee
has been established it should consider
revising this schedule to fit the factory’s
requirements and the workers’ needs.
The timetable begins six to twelve
months before the cooperative
business is launched.
creating factory cooperatives /// 9
Preparation
Preparation: The Early Stages
The initiative to start a factory
cooperative can come from owners,
managers or workers themselves. Who
initiates the idea is not as important as
allowing all workers to participate in the
process once it has begun.
Identify a small group of people who are
interested in working as an Organizing
Committee to look at options for
establishing a cooperative. This group
must have representatives from all
levels of the factory staff and a good mix
of skills and experience.
The Organizing Committee can then:
• Survey all levels of workers in the
factory to determine their needs
• Hold meetings of groups of workers
to discuss the idea of a cooperative
and obtain opinions
• Organize formal training sessions so
members of the Organizing
Committee and other workers can
learn about the operations of a
cooperative
• Based on the needs and ideas of all
levels of workers in the factory,
propose the type of cooperative
business to be established
• Visit active cooperatives in other
factories to learn from their
experiences and avoid common
pitfalls
Preparation: Six Months Before
Opening
Based on the needs expressed by the
workers the Organizing Committee
should:
• Draft and agree on the cooperative’s
mission statement. This should be
openly shared with the workers to
ensure they agree with and support
10 /// creating factory cooperatives
the reason for establishing the
cooperative.
• Develop the cooperative’s business
plan. The business plan should
provide a clear map of how the
cooperative will achieve its mission
and also become financially
sustainable.
• Develop the cooperatives rules.
These are called the by-laws.
Obtain and study the model
cooperative by-laws provided by
the
Government
Cooperative
Department. Seek professional help
to modify the document to fit the
workers’ special needs. The revised
cooperative by-laws and other
registration papers will need to be
submitted to the Cooperative
Department for approval.
• Make sure there is an ongoing
program to educate the workers
about cooperatives and how they
work.
•
•
-
•
Preparation: Three Months Before
Opening
• A formation meeting is held to
adopt the by-laws, agree the
membership or share fee and sign
up the initial members, and to
choose a Board of Directors. The
cooperative by-laws will talk about
how to choose or elect the Board
which is usually made up of 7 to 11
people.
• Officers of the Board (Chairperson,
Treasurer, Secretary) are appointed
or elected as specified in the
cooperative’s by-laws. The new
Board might choose to set up
some other small committees to
help it with particular pieces of work
such
as
overseeing
the
cooperative registration process,
preparing the offices and work area
of the new cooperative, training
workers
about
cooperatives,
reviewing the business plan, etc.
The newly elected Board selects the
Manager for the business it will
operate. The Board may choose to
also appoint other staff, but this
should be done together with the
Manager to make sure there is a
strong team.
Board
members
read
and
understand the following to learn
more about the cooperative and their
specific duties and responsibilities:
The Cooperative Act and Rules
The cooperative’s business plan
The cooperative by-laws
Board and staff job descriptions
All cooperative policies, procedures,
and internal controls
Other training materials that will be
used to educate the Board and
members about cooperatives and
how they work.
Finalize plans for the cooperative’s
business location, equipment and
facilities.
Preparation: Less than Three Months
to Opening
• The Manager and Board Executive
committee members open bank
accounts. The Board authorizes
particular people who can sign on
behalf of the cooperative - for
example the Board Chairperson, the
Board Secretary and the Manager.
• The Manager and Board plan the
grand opening of the cooperative’s
business. Remember that the launch
will
be
a
good
time
to
encourage more workers to join as
members of the cooperative.
• The Manager and Board obtain any
insurance coverage needed to
protect the cooperative and its staff.
• The cooperative staff purchase
furniture and equipment and
prepare the office and working area
of the new cooperative.
After the Cooperative’s Business
Opens
• Board members and staff engage in
cooperative promotion throughout
the factory and encourage all
workers to join as members.
• The Board of Directors meets at
least monthly to guide the work and
development of the cooperative.
Additional special meetings can be
called as needed. One week before
the monthly meeting the agenda is
to be sent by the Board Secretary to
all Board members along with any
new information that will be
discussed. The cooperative Manager
assists the Secretary with preparing
information that will be sent with the
agenda. All items discussed at the
meeting(s) are to be noted in the
Board minutes.
• For the first 12 months of operation
the Board closely monitors the
actual results and measures them
against the business plan. The
results are discussed at the monthly
Board meetings. The Board must
pay particular attention to the
financial performance of the
cooperative.
• Board members should visit the
cooperative weekly and at different
times to observe and understand the
operations and assist the Manager
and staff when needed.
After the first 12 Months of Operations
• The Board appraises the Manager’s
performance
based
on
the
achievement of the goals and
objectives set out in the business
plan.
• The Board and Manager compare
first year actual results to the
budgeted numbers and with new
goals established by the Board, use
this information to develop next
year’s budget.
• The Board calls a General Meeting
of all cooperative members to
review the performance of the
cooperative, set new goals and
choose new Board members as set
out in the by-laws.
Then the yearly cycle begins again.
Choosing The Type Of
Cooperative
There are three types of cooperatives
which are most commonly suitable for
workers:
Type
Description
Examples
Financial
Cooperatives that offer financial assistance,
loans, savings schemes, investment and
insurance services to members
Credit unions
Savings & credit cooperatives
Insurance cooperatives
Consumer
Cooperatives that provide goods for personal
use. These can range from small purchasing
groups to large supermarket-type organizations.
Food. School supplies. Hardware.
Clothing. Electronics. Appliances.
Computers.
Service
Cooperatives that provide specific services to
its members or the factory. These can range
in size from small day care centers to a large
housing cooperative.
Water supply. Housing. Day care
and nursing. Health care. Funeral
services. Transportation and
communication services.
creating factory cooperatives /// 11
workforce may have more of a need
for a health care cooperative. Some
cooperative types appeal to all ages
and genders – such as a savings and
credit cooperative.
The cooperative will have more chances
of success if the factory agrees to
support it by providing start-up
subsidies in the form of premises, staff,
equipment and expert advice.
• Financial
sustainability:
The
cooperative is a business and needs
a well developed business plan. The
cooperative should aim to be able to
financially support its own activities
in a reasonable period of
time. The period of time will be
different for each cooperative but
should rarely be longer than three
years.
Below is an example of a table one
factory used to help indicate the type of
cooperative that would be most useful
to the workers. They were considering
whether to establish a health care
cooperative, a childcare cooperative, a
retail cooperative or a credit and
savings cooperative.
Two main factors to consider in
choosing the type of cooperative:
• Workers’
needs:
Workers’
participation
in
joining
and
supporting the cooperative will be
highest if the cooperative is meeting
a genuine need. If more workers join
the cooperative, it is more likely to
succeed.
Different factory staff profiles will
indicate needs for different types of
cooperatives. For example, a
factory that employs many young
married women may have a need for
a child care facility. An older
Cooperative Selection Guide
Demographics of factory workforce: Mix of young, fairly uneducated men and women with majority being
women. Many women have children. Most workers are healthy. Nearly all workers have modest incomes
and have relatively low standards of living.
Sample Cooperative Types
Health care
Child care
Retail Store
Savings & Credit
Choices (do workers
have existing choices
to access the products
or services?)
Many providers.
Wide choices.
Limited number
– family or child
care provides.
Many available
Few – mostly
black market.
Pricing (are prices of
the products or services
affordable for workers?)
Moderate to high in
relation to income.
Low to moderate
– depending on
provider.
Competitive pricing.
Affordable at many
locations
High prices – not
affordable.
Convenience (is it
convenient for workers
to access products or
services?)
Limited. Travel is
required.
No. Because there
are few providers,
workers must travel
to access service.
Yes – many stores,
kiosks.
Yes – money lender
comes to factory.
Workers`needs (how
important is it to workers
to access these products
or services?)
Moderate to high if
pricing is affordable.
Very high if family
members are allowed
access.
High if cost is
affordable. Very
convenient to have
service at factory.
Moderate to low.
Have many choices
with competitive
pricing.
Moderate to high.
Coop is place to
save and borrow at
market rates.
Sustainability (what is
the likelihood that the
coop will be financally
viable?)
Probably low unless
subsidized by factory.
Probably low unless
subsidized by factory.
Questionable due to
competitive pricing.
High. Business model
suggests that coop is
sustainable.
Considerations
12 /// creating factory cooperatives
Multi-purpose cooperatives deliver
several services or products at the
same time. These may include related
businesses or unrelated businesses.
For example, one cooperative may offer
savings and credit services, a retail
store and a health care clinic. In the
table above the activities are mostly
unrelated.
If the workers suggest a multi-purpose
cooperative, it is important to note that
they are more complex and challenging
to manage. International experience
has shown that multi-purpose cooperatives are also more likely to fail.
Starting a Cooperative –
Some helpful Hints
In preparing this booklet to guide your
efforts in setting up a factory
cooperative, a team of local and
international researchers looked at
factory cooperatives in Thailand and
Indonesia, as well as reviewing
literature from around the world. Here
are some common points they found
that help ensure the factory
cooperative is successfully established:
A LESSON FROM AN AUTO WORKERS’ CREDIT UNION IN
MONGOLIA
A strong member base is critical to sustainable growth
AUTO Credit Union was established in Mongolia as a cooperative of auto repair
employees who wanted to provide themselves with savings and credit services. At the
time of the founding of this cooperative, credit union law in Mongolia stated that as
few as 5-10 members were needed to establish a cooperative structure. When the
founders of ABC started the organization there were only 15 total members. The
organization grew slowly, but expansion of services outpaced member growth and
the financial health of the cooperative suffered.
In most countries the absolute minimum number of members for a successful credit
and savings cooperative is considered to be 500 people.
Setting up and running a successful
cooperative requires active factory
owner and management support and
commitment.
The owner and senior managers
should become members of the
cooperative; should periodically visit
the cooperative and meet with the
Board to understand how the
cooperative is progressing; should
demonstrate their support of the
cooperative in front of the workers; and
should provide the cooperative with
opportunities to promote its services.
At the same time, owners and senior
managers need to recognize that the
cooperative is an independent
organization with its own mission,
Board of Directors and staff. The factory
needs to respect the independence of
the cooperative and should not
interfere or attempt to unduly influence
the cooperative in any way. The balance
between support and interference is
sometimes delicate and requires care.
Factories with a large number of
employees have a better chance of
establishing a successful cooperative.
Different cooperative types need
different size of membership, but
bigger is almost always better. As an
example, a savings and credit
cooperative should have a minimum of
500 members in order to effectively
handle funds.
creating factory cooperatives /// 13
Educating workers about the structure
and role of the cooperative vital for its
success.
The cooperative is a business and its
members are its owners. To run a
successful business the owners must
understand how it works. Before
opening the cooperative, hold a series
of meetings with workers over a period
of at least a few months. Educate
workers on the planned operations of
the cooperative and give them
information on what they can expect.
The more the workers know and
understand about the cooperative, the
more they will be willing to join and
support it.
Providing skills training will assist
members to participate.
Once a cooperative is established,
workers may also require training in
basic skills such as organizing a
meeting, how to participate in a
democratic process, team decisions,
how to deal with conflict and others.
Without such skills, the workers may
not be able to fully participate in and
support the cooperative.
Carefully select the committee of
people who will work to establish the
cooperative.
It is vital that the committee has people
who are able to genuinely represent the
workers and ensure their real needs are
to be addressed by the cooperative. The
committee should also have people with
business skills and experience. All the
committee members should have or
receive appropriate education and
training on cooperatives and have a
commitment to the success of the
factory cooperative. It is very likely this
group will become the first Board of
Directors of the new cooperative, so it is
important to make sure the committee
has good decision makers who are
respected by the workers.
14 /// creating factory cooperatives
The cooperative is a business and it
needs a clear business plan.
A successful business needs to know its
market and meet real needs. The
cooperative’s market is the worker
population in the factory and their
needs should be professionally
surveyed and identified. Meeting these
needs will then provide the basis of the
business plan. Factory owners and
managers will be able to give
experienced
support
to
the
development of the plan. If possible
some professional assistance can be
sought in developing the cooperative’s
business plan. The business plan will
determine its goals, how it will be
structured, how it will operate and how
it will be financially sustainable.
Use the professional support and
guidance
available
from
the
Government Cooperative Department
and
Cooperative
Support
Organizations such as those listed in
Appendix A
Always seek professional help when
drafting the initial set of by-laws and
board policies and putting together a
well-rounded program that includes
worker
and
factory
supervisor
education and training.
Successful
factory
cooperatives
almost always receive some financial
subsidy from the factory during the
cooperative startup phase and this
continues for an agreed period of time.
For example, in setting up a savings and
credit cooperative, the factory should
consider providing:
• Free office space
• Office improvements such as
counters and shelves
• Office furniture such as desks,
chairs and filing cabinets
• Office equipment, such as
computers, printers, a safe,
telephone system
• Financial subsidy to pay the salary
and benefits for a well qualified and
experienced cooperative
manager and assistants
• Initial purchase of office supplies
• Payroll deduction services
In the beginning, the new cooperative
has no income and no assets. It needs
help to get started. Experience in Asia
shows
that
successful
factory
cooperatives require some subsidy for
approximately three years.
Many factory cooperatives in Asia
receive continuing support from factory
owners and managers because they see
the benefits for their workers.
After three years some factories
continue to provide free office space,
utilities, payroll deduction services and
provide professional advice to the
cooperative.
Consider establishing a credit union or
savings and credit cooperative.
This type of cooperative has enjoyed
success in many countries. There are a
lot of good models on which to base
your efforts and many resources
available to support you. Experience in
Asia has also shown credit unions are
very popular with workers as they
provide direct assistance in personal
financial management, extend loans to
meet workers needs, and provide a
secure means of saving money.
The Manager of the new cooperative is
the most important staff appointment.
The Manager will direct the business of
the cooperative on behalf of the
members. This person needs to show
experience as a successful manager,
have a good knowledge of cooperatives
and how they function, and display a
competitive spirit to grow a strong,
financially sustainable enterprise.
Starting a Cooperative - Some Warnings
The following points are suggestions
based on the lessons learned by
factory cooperatives in Asia and
throughout the world.
Do not rush.
Take time to educate workers and
thoroughly prepare for the first day of
business. The more the workers
understand the operations of the cooperative, the easier it will be for the
cooperative to attract their membership and grow into a successful
business.
A LESSON FROM A WORKER COOPERATIVE IN ASIA
When the Board of a cooperative was asked what mistakes have been made so far,
they listed the following:
a) Did not critically study the by-laws enough before proposing and adopting them.
As a result some rules worked against the development of the cooperative.
b) Not enough education was provided to the members regarding the “growing
pains” of a new cooperative and the need for members to be patient. The coop
received complaints from members who did not understand the difference
between a new, developing business and a more established cooperative.
Conduct a feasibility study before
launching the cooperative. It is
recommended that before beginning
the coop a survey should be conducted
among workers to confirm their
interest/willingness to join. A feasibility
study should also be conducted
to determine the viability of such an
effort.
Remember that the cooperative is a
business. Even though a cooperative
has a unique way of operating and
seeks to meet the real needs of the
workers, do not forget that it is a
business and that it needs to be
operated like one.
Do not accept financial subsidies
without a specific ending date. If the
factory is providing a financial subsidy
to help establish the cooperative, be
clear on when this assistance will end.
This should be based on the projections
made in the initial business plan and
will ensure the cooperative members
are realistic in their expectations.
ADVICE FROM THE COOPERATIVE DEPARTMENT IN
THAILAND
The Cooperative Department in Thailand has supported the development of many
successful cooperatives. When people come to them suggesting they want to set up
a consumer cooperative, the Department advises them to look carefully at
existing shops and retail outlets. They advise that consumer cooperatives find it very
difficult to compete against existing commercial suppliers and warn people to be very
careful.
creating factory cooperatives /// 15
A LESSON FROM A HEALTH COOPERATIVE IN UGANDA
Keep the activities simple and the operating costs low
A Health Clinic Cooperative in Uganda was established to provide services to farmers.
Instead of trying to run a hospital the cooperative agreed to provide only a limited
number of services to treat the most common complaints. More complex or unusual
cases are referred to the Government Hospital which is harder for the farmers to get
to but is subsidized by the Government. Farmers are thus able to obtain assistance
for their most common illnesses and injuries but the cooperative is able to keep its
costs down.
A LESSON FROM TWO CHILDCARE COOPERATIVES IN
ETHIOPIA
Don`t depend on external subsidies
In the mid-1980s, as part of a program to promote worker childcare, UNICEF helped
establish several childcare cooperatives in Ethiopia.
The YY Childcare Cooperative was established to support subsistence farmers, many
of whom were women struggling to balance childcare and farm work. A manager was
hired to run the center and local villagers were trained by UNICEF to watch children.
Although UNICEF funds helped build the facility, the cooperative quickly became selfsustaining through member fees. Services were first limited to simple, half-day
sessions, but expanded gradually as demand from members increased. Since its
establishment, the cooperative has been widely considered a success and used as a
model for creating childcare cooperative throughout Africa. Productivity among
female workers has increased significantly and the cooperative has contributed
positively to the quality of life of its members.
The M O Childcare Cooperative, on the other hand, accepted the financial assistance
of UNICEF but members failed to work together to develop a plan for the service to
become sustainable. An appropriate fee structure was not put in place and the center
has remained highly dependent upon external funding. It is experiencing significant
operational difficulties and is in danger of closing down.
A LESSON FROM A PHILIPPINES COOPERATIVE
Offering more than one service increases risks
The Ban Cooperative Society is a credit union of over 8,000 members in the
Philippines. It was operating successfully, so the members requested that the
cooperative expand into grocery stores and other services. The Board and Manager
found the operations of the different types of businesses very complex and costly. The
cooperative was only marginally profitable during the entire time it operated the nonfinancial services. The Board decided to stop the non-financial services and profits
soon returned.
16 /// creating factory cooperatives
Do not begin with a multi-purpose
cooperative. The risk of managing
multiple businesses has proved too
much for many cooperatives in the past
– particularly at the start. Concentrate
on ensuring the success of one type of
activity before considering others.
Some of the greatest pitfalls or
challenges for cooperatives include:
• Conflict
of
priorities
where
obligations to the cooperative
conflict with other work obligations
and members see their engagement
in the cooperative as being a burden
• Corrupt and incompetent leadership
which
leaves
the
members
disillusioned
• Emphasis on the social rather than
the business outcomes which
results in an enterprise that is not
financially viable
• False expectations about the costs
and benefits
• Lack of growth of membership and
thus the business
• Lack of understanding and control of
workers over the cooperative.
Before establishing a cooperative, the
founders must closely consider all
these aspects as well as other
alternatives. Workers and factory
managers must agree on roles,
responsibilities and expectations.
Together they must invest in the
necessary studies to determine the
focus and feasibility of the effort and
then support the education of potential
members to ensure that there is
common understanding about the
venture. If proper preparatory work is
conducted and the cooperative is
determined as the best organizational
structure to meet real needs, then there
is a very good chance the cooperative
will be a success.
Assistance Available to the Cooperative
The
Cooperative
Department
established by most governments is
the body which regulates cooperatives.
A meeting with the Cooperative
Department will help you to learn about
the process of establishing the
cooperative, the laws and regulations
that must be followed, and the
assistance the Department can
provide.
The Cooperative Department may
also be able to put factory staff in
contact
with
other
successful
cooperatives which can provide useful
advice.
Factory owners and managers may
also be able to provide advice based on
their own business experience.
In addition, there are a number of
international Cooperative Support
Organizations that are able to provide
additional information or technical
assistance upon request. Some of
these organizations are listed in this
booklet.
In some countries, non-governmental
organizations (NGOs) or community
organizations may also be able to
assist. NGOs will often be ready to
assist workers develop their ideas for a
cooperative. They can sometimes also
provide training, undertake research,
and be a source of advice on operating
small scale savings and loan schemes.
Conclusion
Cooperatives are a form of organization
where people come together to set up a
legally recognized business structure
to achieve common goals. While a
cooperative has to be financially
sustainable, its primary purpose is to
serve the members rather than
generating huge profits.
Establishing a factory cooperative can
offer factory owners, managers and
workers exciting opportunities to meet
their needs, learn new skills, and
provide benefits for the factory and all
who work in it. Yet cooperatives might
not work for everyone. They require
commitment, time and hard work.
creating factory cooperatives /// 17
APPENDIX A
Cooperative Departments & Support Organizations
Thailand
Cooperative Promotion Department
Ministry of Agriculture and
Cooperative
12 Krungkasem Road
Tawes Sub-District
Phra Nakorn District
Bangkok. Thailand
Tel: +66 2-2811900, 02-2813095,
02-2822922
Fax: +66 2-2826078
http://www.cpd.go.th (Thai language)
http://www.cpd.go.th/eng/index.htm
(English language)
Cooperative League of Thailand
No.4 Phichat Road, Dusit District,
Bangkok 10330
Phone: +66 2 3254-62
Fax: +66 2 241 1013
Email: [email protected]
http://www.clt.or.th/main.html
Vietnam
Vietnam Cooperative Alliance
77 Nguyen Thai Hoc Street
Ba Dinh District, Ha Noi. Viet Nam
Tel: (84-4) 8431689 -7330774
Fax: (84-4) 8431883
Email: [email protected]
http://www.vietnamcoop.org/
template_tintuc.htm (Vietnamese
language)
http://www.vietnamcoop.org/english/
index.html (English language)
Indonesia
Cooperative and Small and Medium
Enterprises Department
Jl. H.R. Rasuna Said Kav. 3-5
Kuningan - Jakarta 12940
Phone: (+62-21) 52992983, 52992885,
5204366-74, 52992777
Fax: +62-21-5204378, 5272742
Email: [email protected]
http://www.depkop.go.id
Cambodia
Ministry of Agriculture, Forestry and
Fisheries.
#200 Norodom Blvd, Sangkat Tonle
Basak,
Khan Chamkarmorn, Phnom Penh
12301, Cambodia.
Tel: (855) 23 211 351, 23 211 352
Fax: (855) 23 217 320
E-mail: [email protected]
http://www.maff.gov.kh
NB: The Ministry of Agriculture,
Forestry and Fisheries (MAFF) is
beginning to support the revival of
cooperatives in Cambodia. There is no
specific department under the
Ministry assigned to take care of this
issue. The Ministry plans to enact a
Cooperative Law in 2005.
18 /// creating factory cooperatives
World Council of Credit Unions
http://www.woccu.org
The World Council of Credit Unions
(WOCCU) is the lead organization for
the advocacy and development of
credit unions throughout the world.
The organization represents credit
unions from 81 countries with over 100
million individual members on six
continents.
Canadian Cooperative Association
http://www.cooperativecca.com/
cooperativedevelopment/
internationaldev/
The CCA is an umbrella organization
representing cooperative businesses
throughout Canada. The international
development arm of the organization
promotes the creation of various
types of cooperatives in the developing
world.
ACDI/VOCA
http://www.acdivoca.org
ACDI/VOCA is the international
development arm of the United States
Farmers Cooperative Association. The
organization promotes the
development of farmer cooperatives,
with an emphasis on agricultural
production.
Land O’Lakes International
Development
http://www.idd.landolakes.com/
Land O’Lakes, one of the largest
producer cooperatives in the United
States, provides technical assistance
to producer cooperatives in the
developing world through its
international development division.
The focus of the organization is on
dairy cooperatives.
International Cooperative Alliance
http://www.ica.cooperative
ICA is the worldwide member
organization for cooperatives in
several sectors, including health,
housing and producer and consumer
organizations. The organization has
several regional offices that focus on
the development and promotion of
various types of cooperatives.
National Cooperative Business
Association, CLUSA International
http://www.ncba.org/clusa.cfm
CLUSA International is the
international development arm of the
National Cooperative Business
Association, which represents
cooperative businesses in several nonfinancial sectors. The organization
currently has 25 active projects in 11
countries.
creating factory cooperatives /// 19
APPENDIX B The Legal and Policy Framework
In many countries there is a formal
legal framework that helps define the
cooperative’s purpose, its powers and
provides the workings for on-going
operations. You should check with
local authorities for the laws relevant to
your country. A typical framework
includes:
1. The Cooperative Act –
The Cooperative Act or law is the broad
supreme directive that permits
cooperatives to operate and helps to
define their structures. It is approved by
the Government, depending on the
constitution within the country. As
such, changes to the Act usually come
about slowly. The Act is customarily
administered by a national regulator
charged with overseeing the healthy
development of the cooperative
movement. The regulator, frequently
referred to as the Cooperative
Department, has several functions but
mostly is involved in promoting
cooperatives;
providing
limited
technical
assistance;
auditing
(examining) operations; and overseeing
the Act with relatively broad
enforcement powers. The Cooperative
Department is interested in the safety
and soundness of cooperatives.
Typically, the Act will cover such items
as:
• The cooperative’s powers
• Members’ rights and
responsibilities
• Membership meetings
• Investments and borrowing
• Member expulsion
• Dividends and reserves
• Powers of the Cooperative
Department
• Mergers
20 /// creating factory cooperatives
In many parts of the world today,
cooperatives are set up as limited
liability companies. The non-legal
definition of this designation is that
members of the cooperative have no
financial liability to the cooperative’s
creditors beyond the value of their
shares. This is the more desirable set
up and the common structure used
today.
An older model, the unlimited liability
company, implies that members are
liable for the debts of the cooperative –
even beyond the level of their
shares.
In either setup, most countries do not
have share or savings guarantee
insurance systems in place to protect
members’
investments
in
the
cooperative should the cooperative fail
and it has insufficient reserves to pay
members.
2. Cooperative Department Rules –
From time to time, the Cooperative
Department may issue regulations
dealing with specific cooperative
issues. Normally, these less formal
rules do not require approval by
Government because the Act generally
grants the Cooperative Department the
power to issue rules. The process used
by the Cooperative Department may
vary from country to country, but
generally the Cooperative Department
publishes
intended
rules
and
distributes copies to cooperatives for
feedback. A formal hearing then takes
place before the rule is put in effect.
Cooperative Department rules may
cover such items as:
• Retention of records
• Sale of certain products
• Miscellaneous investments
• Branching - additional locations
• Non-preferential treatment
3. The Cooperative’s By-laws –
The by-laws are like a government’s
constitution. They define the rights and
obligations of each member of the
cooperative and constitute a legal
document. Typically by-laws cover such
items as:
• The cooperative’s mission and
fields of activities
• Requirements for becoming a
member and terminating
membership
• The procedure for calling the
annual general meeting, special
meetings, and meetings of the
Board of Directors
• The powers and responsibilities of
the Board of Directors and
committees appointed by the Board
• The powers and responsibilities of
the chief executive officer
(Manager) of the cooperative
• The par value of shares
The initial set of by-laws is usually
drafted by an Organizing Committee
made up of potential cooperative
members (to be discussed later).
Once approved by the regulator,
subsequent changes to the by-laws
require a membership vote. Because of
this, by-laws should be written in
general terms so changes are seldom
needed, but they should be
comprehensive enough to deal with
important issues pertinent to the
cooperative’s workings. The reason for
this approach is because it is somewhat
cumbersome
(and
potentially
expensive) to arrange for special
membership meetings every time a
cooperative wants to amend its by-laws.
By-law content could very well differ
between cooperatives – not only
because the cooperatives are of
different types, but because a particular
cooperative chooses to operate in a
unique manner to meet the special
needs of its members. Drafting the
initial by-laws should not be taken
lightly. Although most Cooperative
Departments have a model set of bylaws that it freely shares with groups
interested in starting a cooperative,
frequently cooperatives should seek
professional help in drafting the initial
set of by-laws. Model by-laws provided
by the regulator tend to follow a pattern,
which may or may not provide the
powers needed to run an effective
cooperative today. They also tend to be
too general - a sort of “one size fits all”
approach. Remember, there are many
types of cooperatives today, with very
different functions. Drafting one set of
by-laws to fit the needs of these diverse
enterprises is impractical. Finally,
model by-laws provided by the
regulator tend to be somewhat dated –
not necessarily keeping pace with
modern business practices. So by-laws
need careful consideration by the Board
of Directors acting on behalf of the
members.
4. The Cooperative’s Policies –
Policies are decided upon by the
cooperative’s Board of Directors and
can be altered from time to time to meet
the cooperative’s changing needs.
Policies are individual cooperative rules
designed to further define how the
cooperative is to operate. They are used
by the cooperative Manager and staff to
run the day-to-day operations.
Policies can cover a number of subjects
but usually deal with subjects such as:
•
•
•
•
•
•
Financial management
Reserves and earnings
Risk management
Administration
Personnel issues
Pricing of services and products
Where the Act is quite general, the
cooperative’s by-laws are more specific
but not so specific as to make it difficult
for the cooperative to operate
effectively.
Policies are even more specific and
provide the “customization” of the
cooperative based on the wishes of the
Board of Directors and members. They
are easy to change - usually by a
majority vote at the monthly Board of
Directors meeting and are important
rules and guidelines to be used by the
manager and staff.
These subject areas can easily be
expanded to fit the needs of a particular
cooperative. As the cooperative grows,
the need for well written policies grows.
creating factory cooperatives /// 21
APPENDIX C The Organizational Structure
Typically, a cooperative is made up of
members, a Board of Directors,
committees, a Manager, and a staff.
Members
Members are the owners (and
customers) of the cooperative. In the
context of a factory, the owners are the
workers who choose to join the
cooperative. As members, they have
certain rights. These include: the right
to vote; the right to serve on the Board
of Directors; the right to decide on
certain
matters
affecting
the
cooperative; and the right to use the
services of the cooperative as long as
the policies and practices of the
cooperative are adhered to.
Members usually come together once a
year at the Annual General Meeting
(AGM), where Board members are
elected; new business is conducted;
policies are discussed; and members
voice their opinions about the running
of the cooperative. In addition to the
AGM, special membership meetings
may be called from time to time to deal
with a specific issue facing the
cooperative that requires membership
consideration.
Board of Directors
A Board of Directors is usually made up
of an odd number of elected
volunteer directors, typically 7 or 9
members. If there are fewer than
seven members, the make up of the
Board may not represent a fair
sampling of members. If greater than
nine members, the size of the group
makes it more difficult to make
decisions and deal with issues
efficiently. The Board usually adopts
staggered terms to ensure that there
are always experienced individuals
overseeing the cooperative. New
22 /// creating factory cooperatives
members are usually elected for three
year terms. The Board is accountable to
the members.
The Board meets at least monthly and
deals with issues facing the
cooperative. Examples of board agenda
items include the following:
• Policies – establishing guidelines for
the manager and staff that may deal
with (1) internal controls, (2)
financial management, (3) pricing,
(4)
personnel
issues,
(5)
administration, etc.
• Pricing decisions – how much to
charge for a product or service.
• Services & products - deciding on
what services and products to offer
members.
• Goals – dealing with strategic
issues to continually improve the
cooperative.
• Monitoring – receiving tracking
reports to ensure that the
cooperative is being run in the
manner prescribed by the Board.
Committees
The Board of Directors generally has
the power to appoint one or more
committees to carry out specific
assignments. These assignments may
have a limited life – for example, six
months, or possess an unlimited life.
Committees may be made up of Board
members, members who are not on the
Board, or non-members who are asked
to participate because they have
specific
expertise.
Generally,
committees are made up of a mix of
Board members and regular members
and number from 3 to 5 people. They
are usually appointed when a subject
needs special attention and it is not
efficient for the entire Board to deal
with the subject at its regular monthly
meetings. Appointed committees are
accountable to the Board.
As an exception to committees being
appointed by the Board, the supervisory
or audit committee is commonly
elected by the members at the AGM.
The purpose of this committee is to act
as the “members’ watchdog” to ensure
that the cooperative is operating
according to the rules. Elected
committees are accountable to the
members and report directly to them at
the AGM. This may be the only
committee that is required under law.
Normally, three to five members with
finance or accounting backgrounds
who serve on the supervisory
committee.
Other committees, which may be
appointed by the Board, include the
following:
• Credit committee – charged with
acting on members’ requests for
credit
• AGM committee – charged with
planning the members’ annual
event
• Pricing committee – charged with
setting prices for certain products;
interest rates on loans and deposits;
fees for specific services, etc.
• Personnel committee – charged
with
conducting
performance
appraisals of the Manager and
recommending
compensation
issues to the Board
• Executive committee – usually
consisting of a few senior members
of the Board, the executive
committee is able to meet more
often than the Board and is
empowered to act on its behalf between regularly scheduled board
meetings.
Manager
The cooperative Manager is normally a
full time professional and is a key
individual charged with running the
day-to-day activities of the cooperative.
S/he hires and supervises staff;
ensures that services and products are
delivered to members according to the
policies and standards set by the Board;
and reports to the Board on the
condition and issues facing the
cooperative. The manager is hired by
the Board and reports to them.
Staff
The cooperative staff is hired by the
Manager and is charged with specific
duties. In the beginning, common staff
positions include accountants or
bookkeepers and member service
representatives. As the cooperative
grows, other positions may be added,
such as information technology (IT)
specialists, human resource (HR)
experts, and marketing professionals.
Staff is accountable to the cooperative
manager.
creating factory cooperatives /// 23
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